In these changing times, the modi operandi for businesses have taken a different turn from what we used to know. The level of competition is higher, companies are adapting to technological innovations and brands are changing the way they interact with customers. In order to create value for customers, one would ask, how can an organisation stay afloat with these rapid changes? How can it make profit while creating value? The key to answering these questions lies in the business model a company adopts.
In business, a model refers to the description of a company’s plan to create value and make a profit. It is not to be confused with a business plan which provides in detail the roadmap for a company, its strategic plans, goal and objectives, as well as financial projections. A business model is at the centre of a business plan. So, in other words, the business model is the foundation of a company, while the business plan is the structure.
A business model applies to both new and established businesses. For a start-up, a business model helps to identify the products/services an organisation plans to offer, the target audience, the cost involved in creating such value at the initial point and the level of profitability expected. On the other hand, to an existing company, a business model comprises the plans for entering a new market, to attract investments or to promote efficiency in operations.
Types of business models
There are many types of business models and each of them can be applied differently depending on the industry in which the company operates. For instance, a business model for a manufacturing company may differ from that of a service industry. It is however interesting to note that even in the same industry or line of business the business models applied may differ.
Therefore, a good understanding of the main business models is required to determine which model will work for your organisation. We have classified the various models into three categories:
Traditional Business Model
Modern Business Model
Hybrid Business Model
Traditional Business Model
This model refers to businesses built of brick and mortar. Where customers are required to travel to the physical address of a store or company in other to purchase items or transact business. It is typical of company in supply chain activities.
Modern Business Model
This refers to companies that provide a valuable Business to Business (B2B) or Business to Consumers (B2C) software solution that becomes crucial for their users/customers to perform their functions. For example, Software-as-a-Service (SaaS) products. Businesses that operate online or virtual offices, and brands are paying more attention to their customers and utilising online digital platforms to reach them. The modern business model is mostly adopted by players in the service industry.
Hybrid Business Model
This is a combination of both traditional and modern business models. Many companies that started off with the former are now integrating their processes to accommodate modern business models.
To enable a company to map out its business model, it needs to answer the following questions:
Who are our target audience?
How do we intend to reach them and at what cost?
What is our value proposition?
How do we maximise value?
Do we need to change or optimise the way we run our operations?
How do we combine the processes for maximizing value with our resources?
In summary, there is not one fits all template when it comes to crafting a business model that works. A business model simply addresses the “what” and “how” of value creation and maximisation. In order to craft a strong business model, key decision makers need to dig deep to address all matters relating to their operations. After mapping out how they will create value for their customers, the next is to review it often and implement changes as and when needed
In our next blog, we will discuss how to develop your business model.
If you have any questions regarding how to get started with a business model, email us at enquiries@ovacgroup.com.
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